met expectations Tuesday, with revenue getting a boost from cutbacks in promotional pricing.
The cable TV system operator showed larger-than-expected basic subscriber losses and acknowledged increasing competition from satellite services, but expressed hope -- like other operators -- that offering advanced services such as telephony would improve cash flow and its competitive position.
For the fourth quarter ended Dec. 31, MediaCom reported revenue of $258.8 million, up 8.3% from the fourth quarter of 2002 and slightly ahead of the Thomson First Call consensus of $257 million.
Net income, on the basis of generally accepted accounting principles, was $7.1 million, or 6 cents per share, compared to a year-earlier net loss of $49 million, or 41 cents per share.
Operating income before depreciation and amortization -- the cash flow number more closely followed by cable analysts (and previously known as earnings before interest, taxes, depreciation and amortization) -- amounted to $102.7 million, up 7.1% from the fourth quarter of 2002 and roughly matching the First Call estimate.
On a call with analysts Tuesday, CEO Rocco Commisso attributed the company's performance to a strategy of managing for revenue growth -- a tack that resulted in less discounting and promotional pricing in the fourth quarter of 2003 than the company had offered in the third quarter.
Commisso, however, said that the company was increasing its customer retention efforts through specialized promotions and dish buyback programs to lure satellite customers back into the cable fold.
Competition from cable operators is increasing, the company indicated, as direct broadcast satellite operators
roll out satellite-delivered packages of local broadcast stations.
The ability to offer local broadcast stations as part of a multichannel video package had once been seen as a unique selling proposition for cable operators, but the DBS services, city by city, have been erasing that distinguishing characteristic. On the call, MediaCom executives said that the percentage of its service area competing with DBS local-into-local service had grown from 15% at the end of 2002 to more than 50% at the end of 2003, and would grow to 83% by the middle of this year.
On the bright side, the company said, the subscriber loss rates in systems where it first faced local-into-local competition had slowed "considerably."
That being said, MediaCom surprised some analysts with its fourth-quarter subscriber losses, which led to year-over-year basic cable subscriber losses of 3%. Commisso said he was expecting 2004 subscriber losses in the range of 2% to 2.5%. MediaCom, one of the smaller publicly traded cable operators, has 1.5 million basic cable subscribers.
Like other cable operators, MediaCom is trying to offset those basic subscriber losses with growth in advanced services revenue, such as that from high-speed Internet connections. Indeed, average monthly revenue per basic subscriber amounted to $55.75 in the fourth quarter, up from $50.10 one year earlier.
This year, the most important advanced service initiative for the company appears to be voice-over-Internet protocol telephony service, or VoIP. Commisso said he expected the company to start testing VoIP in the fourth quarter; MediaCom says the VoIP launch will require $10 million in capital expenditures this year.
Commisso said he believed the return on incremental investment from telephony would be "exceptional," and that he expected it to generate positive free cash flow within nine months.
MediaCom's shares fell 7 cents Tuesday to trade at $7.93. The stock has ranged between $6.24 and $11.31 over the past year.